How to calculate profit/loss

Caluculating Profit and Loss

For ease of use, most online trading platforms automatically calculate the P&L of a traders' open positions. However, it is useful to understand how this calculation is derived, as outlined in the below example.

The current bid/ask price for USD/CHF is 1.6321/1.6326, meaning you can buy (long) $1 US for 1.6326 Swiss Francs or sell (short) $1 US for 1.6321.

When analyzing the market you decide that the US Dollar (USD) is undervalued against the Swiss Franc (CHF). To execute this strategy, you would buy Dollars (simultaneously selling Francs), and then wait for the exchange rate to rise.

You purchase US$100,000 and selling 163,260 Francs. (Remember, at .25% margin, your initial margin deposit would be $250.)

As you expected, USD/CHF rises to 1.6434/39. You can now sell $1 US for 1.6434 Francs or buy $1 US for 1.6439 Francs.

Since you're long dollars (and are short francs), you must now sell dollars and buy back the francs to realize any profit.

You sell US$100,000 at the current USD/CHF rate of 1.6434, and receive 16,4340 CHF. Since you originally sold (paid) 163,260 CHF, your profit is 1,080 CHF.

To calculate your P&L in terms of US dollars, simply divide 1,080 by the current USD/CHF rate of 1.6435.

Total profit = US $657.10

If unfortunately the USD/CHF were to decline to 1.6221/1.6226. You can sell $1 US for 1.6221 or buy $1 US for 1.6226 Francs.

To calculate your Loss if you were to sell US $100,000 at the current USD/CHF rate of 1.6221, and receive 162,210 CHF. Since you originally sold (paid) 163,260 CHF, your loss would be 163260 - 162210 = 1050

To calculate your P&L in terms of US dollars, simply divide 1,050 by the current USD/CHF rate of 1.6221.

Total loss = US $647.31

PIP/TICK VALUES

Approximate tick values, USD for major currencies are as follows, per 100,000 units of the base currency:

USD/JPY 1 pip = $8.30; A change from 109.45 to 109.46 is worth approximately $8.30;

EUR/USD 1 pip = $10.00; A change from 1.2310 to 1.2311 is worth approximately $10.00;

GBP/USD 1 pip = $10.00; A change from 1.7965 to 1.7966 is worth approximately $10.00;

USD/CHF 1 pip = $5.64; A change from 1.2545 to 1.2546 is worth approximately $5.64.